Do you need a hotel management company?
Managing a lodging business can be a lot. From ensuring smooth day-to-day operations to distributing inventory and conducting guest relations, it can feel overwhelming to do it all when starting a new hotel.
One decision you must make as a hotel owner is whether or not to partner with a management company. These companies offer a wealth of expertise, resources, and operational support that can help ease the burden on independent operators. However, they require financial investment and loss of control, which isn’t always attractive to hoteliers and hosts.
Here we look at the pros and cons of using a hotel management company, dissect the associated costs, and highlight 15 top management firms.
What is a hotel management company?
Introduced in the 1960s, hotel management companies play a crucial role in maximizing performance and profitability for hotels. They are hired by hotel ownership to act as a trusted partner that takes on operational responsibilities, allowing the owner to focus on the bigger picture – such as strategic decision-making and brand expansion.
Hotels can partner with hotel management from the onset of their new business or introduce them as a strategic decision down the line to boost efficiency.
How does a management company work?
For independent hotels, a hotel management company assigns seasoned professionals to take over operational responsibilities across the property.
Hotel management company responsibilities
Such responsibilities include (but are not limited to):
- Operational efficiency. Ensure smooth day-to-day hotel operations, optimizing everything from housekeeping to maintenance and front desk services.
- Revenue management. Employ strategies to maximize revenue through pricing, occupancy management, and yield optimization.
- Sales and marketing. Handle sales efforts and marketing campaigns to attract guests and increase bookings.
- Distribution. Manage online distribution channels like OTAs and partnerships to optimize bookings and visibility.
- Vendor relationships. Establish and maintain relationships with suppliers to ensure quality and cost-effective procurement.
- Reporting. Generate comprehensive reports to provide insight into the hotel’s performance to ownership.
- Staffing and training. Recruit, train, and manage staff to maintain high service standards.
- Cost control. Implement cost-effective measures, control expenses, and manage budgets to enhance profitability.
- Quality assurance. Ensure the property consistently meets brand standards and delivers top-notch guest experiences.
- Technology integration. Adopt and manage hotel management systems to enhance efficiency and guest satisfaction.
- Guest relations. Handle guest inquiries, complaints, and feedback, ensuring a positive guest experience.
- Strategic planning. Collaborate with property owners to develop long-term strategies for growth and success.
- Legal and regulatory compliance. Ensure the hotel adheres to local laws, regulations, and hospitality industry standards.
What you have control over as a hotel owner
If you decide to partner with a management company, it’s essential to understand what you will relinquish and maintain control over. Here’s an overview of what you will be responsible for as an owner.
- Strategic vision. As the owner, you set the overarching strategic direction for your hotel. You will maintain control over long-term goals, branding decisions, and the vision you want to achieve.
- Financial oversight. While the management company handles budgeting and cost control, you still have the final say on major financial decisions. You review and approve budgets, investments, and significant expenditures.
- Property improvements. You retain control over major property enhancements, renovations, and capital investments. You decide when and how to upgrade the facilities to align with your vision and the market demands.
- Staffing approval. Although the management company is responsible for staffing and training, you can approve key managerial hires and influence the overall team structure.
- Guest experience. You maintain the ability to shape the guest experience. While the management company handles day-to-day guest interactions, you set the tone for service quality, amenities, and overall guest satisfaction expectations.
- Community engagement. As the owner, you can maintain a connection to the local community and engage in community outreach efforts, ensuring your hotel remains an integral part of the area.
- Contractual agreements. You have the power to negotiate the terms of the management agreement. This includes setting performance metrics, defining key performance indicators (KPIs), and determining the length of the contract.
- Special events and marketing initiatives. While the management company handles day-to-day marketing, you can drive the direction of special events, promotions, and unique marketing initiatives to attract specific target groups or enhance the hotel’s reputation.
- Exit strategy. Ultimately, you decide when to end or renew the management agreement based on your strategic goals and the performance of the management company.
How much does it cost to hire a management company?
Bringing a hotel management company on board can offer numerous advantages but does take away from your bottom line. The fees associated with hiring a management company can vary widely based on factors such as the company’s track record, the size and location of your property, the services provided, and the specific terms negotiated. These arrangements commonly use two primary fee structures: base fees and incentive fees.
1. Base fees
Base fees are fixed monthly or annual charges the hotel owner pays the management company. These fees usually cover a range of operational and administrative tasks, including staff management, marketing, and day-to-day operations. Base fees can be a percentage of gross operating revenue (typically 2% to 6%) or a fixed amount.
2. Incentive fees
Incentive fees are performance-based, aligning the management company’s interests with the property’s financial success. These fees are typically calculated as a percentage (usually 10% to 20%) of the hotel’s operating profit or gross revenue, exceeding a specified threshold. Incentive fees motivate the management company to optimize the hotel’s performance, as they directly benefit from increased profitability.
7 tips for negotiating your management agreement
The agreement you define with your chosen management company should be carefully negotiated as the term usually extends for years or even decades. HVS’ Guide to Hotel Management Contracts found the average length of the initial term for their survey’s universal sample set was 20.6 years. Ensure you follow these tips when negotiating.
1. Clearly define expectations. Before entering into an agreement, outline your expectations and the specific services you require from the management company.
2. Benchmark. Research similar hotels in your area to understand the hotel industry norm for management fees.
3. Performance metrics. Tie a portion of the fees to specific performance metrics. This could include guest satisfaction scores, revenue growth targets, or cost-saving goals.
4. Flexibility. Negotiate a fee structure that aligns with your property’s circumstances.
5. Term length. A longer-term agreement might provide more favorable fee terms, but it’s crucial to ensure that the deal includes provisions for performance reviews and the ability to terminate if expectations are unmet.
6. Transparency. Request transparency in financial reporting. You should clearly understand how fees are calculated and what expenses are covered by the management company.
7. Legal consultation. Engage legal counsel experienced in hospitality contracts to review the agreement. They can help identify potential pitfalls and ensure your interests are protected.
Pros and cons of using a management company
Evaluating the pros and cons is crucial for making an informed decision about whether using a hotel management company makes sense for your business.
Pros of using a management company
- Operational expertise. One of the most significant advantages of hiring a hotel management company is their wealth of operational expertise. These companies bring years of industry experience, connections, and specialized knowledge, which can significantly improve the efficiency and effectiveness of your hotel’s operations.
- Time and focus. By entrusting operational responsibilities to the management company, you, as the owner, can focus on strategic initiatives and expanding your hotel business. This delegation allows you to concentrate on higher-level tasks that contribute to the long-term success of your hotel.
- Access to resources. Management companies often have access to a network of suppliers, industry connections, and purchasing power, which can lead to cost savings on supplies, marketing campaigns, and other operational expenses.
- Risk mitigation. Hotel management companies can help navigate the complexities of legal and regulatory compliance, reducing your exposure to legal risks and ensuring that your hotel operates within industry guidelines.
Cons of using a management company
- Costs. The fees associated with hiring a management company can be significant. Both base fees and incentive fees can impact your hotel’s profitability.
- Loss of control. As the owner, you’ll cede control over day-to-day operations. It’s essential to strike a balance between relinquishing operational duties and maintaining involvement in key decisions.
- Alignment of interests. While incentive fees are designed to align the management company’s interests with your financial success, there may be instances where their focus on cost-cutting or revenue maximization doesn’t fully align with your long-term vision for the hotel.
- Standardization. Management companies often bring standardized operational procedures and brand standards. While this can improve efficiency, it might limit your ability to implement features or tailored services that differentiate your hotel and let your unique point of view shine through.
5 reasons to stay independent
The level of control you crave over your business will ultimately dictate whether or not you choose to partner with a hotel management company. Here are a few reasons why you may want to stay independent.
1. Retain uniqueness. If you have a clear and unique vision for your hotel that may not align with the standardized approaches of management companies, it might be challenging to maintain the distinct character and offerings you envision.
2. Maintain control and connection. Some owners thrive on hands-on management, enjoying direct involvement in daily operations and maintaining a personal touch with guests. If this resonates with you, a management company might hinder your ability to oversee important aspects of your hotel.
3. Strong in-house team members. If you’ve built or want to spend time curating a team of professionals that you trust, it’s best to retain operating control of your hotel.
4. Local expertise. If your property relies heavily on local connections, community engagement or has unique market needs, a management company might not possess the local insights and contacts that you have.
5. Technology empowerment. With the rapid advancement of cloud-based hotel management software, technology is making it increasingly easy for independent hotel owners to streamline operations, manage reservations, handle marketing, and gain valuable insights into their business, reducing the need for third-party management.
15 leading hotel management companies
Here we’ve narrowed down some top hotel management companies to consider.
1. Aimbridge Hospitality
Aimbridge Hospitality is a leading third-party hotel management company offering a diverse portfolio of properties. They specialize in providing operational excellence and maximizing profitability for their partner hotels.
Hotels in portfolio : 1,500 / HQ: US
2. Hotel Equities (HE)
Hotel Equities is a trusted hotel management firm in North America focused on building equity and generating upside potential. They specialize in building strong relationships that facilitate expansion, new construction, and rebranding.
Hotels in portfolio: 275 / HQ: US
3. InterContinental Hotels Group (IHG)
IHG operates hotels in three ways – as a franchisor, manager, and on an owned/leased basis. As part of their management option, IHG manages the hotel, but ownership of the physical building remains with a third-party owner.
Hotels in portfolio: 5,991 / HQ: UK
4. HHM (Hersha Hospitality Management)
HHM Hotels is the preferred operator to many sophisticated and institutional owners of hotel real estate, including public and private owners, across the United States and Canada.
Hotels in portfolio: 240 / HQ: US
5. Crescent Hotels & Resorts
Crescent Hotels & Resorts is an operator-built management company that offers innovative services and individualistic strategies that empower hotels, resorts, restaurants, and hospitality businesses.
Hotels in portfolio: 100 / HQ: US
6. HEI Hotels & Resorts
Founded in 1985, HEI Hotels & Resorts is one of the nation’s leading privately held hotel investment and third-party management companies. HEI has evolved from its early days as an owner/operator into the leading hotel private equity fund sponsor before emerging as one of the largest and most respected third-party management companies.
Hotels in portfolio: 100 / HQ: US
7. Concord Hospitality Enterprises
Since 1985, Concord Hospitality has maintained an unparalleled standard of excellence across all capabilities as a hotel development company, owner, and operator, providing dedicated hotel management services to both full-service and upscale select-service properties.
Hotels in portfolio: 140 / HQ: US
8. Pyramid Hotel Group
Pyramid Hotel Group offers tailored strategies, exceptional management, and innovative solutions that redefine the hospitality experience in today’s dynamic market.
Hotels in portfolio: 230 / HQ: US
9. Island Hospitality Management
Island Hospitality Management is a national hotel management company with a reputation for its expertise in managing upscale extended stay, select service, and full-service hotels across major hotel brands such as Marriott, Hilton, Hyatt, Starwood, and IHG.
Hotels in portfolio: 160 / HQ: US
10. Crestline Hotels & Resorts
Crestline provides a true partnership to their properties by collaborating with owners and investors from the beginning and working together to create a unique, forward-thinking and looking operations strategy that continually delivers results.
Hotels in portfolio: 130 / HQ: US
11. GF Hotels and Resorts
GF Hotels & Resorts is a full-service hospitality ownership and management company that works on behalf of a variety of individual owners, real estate funds, and institutional lenders to deliver superior results through positive operating and financial performance.
Hotels in portfolio: 130 / HQ: US
12. Remington Hospitality
A forward-thinking hotel management company, Remington Hospitality is distinguished by its commitment to simply being the best, not the biggest, delivering hospitality, and creating value for every owner and customer, every time.
Hotels in portfolio: 121 / HQ: US
Highgate is an industry-leading hotel management, investment, technology, and development firm with a diverse portfolio of hotels across North America, the Caribbean, Latin America, and Europe.
Hotels in portfolio: 500 / HQ: US
14. TPG Hotels, Resorts, & Marinas
TPG is a premier hotel management company operating hotel properties throughout the United States and all chain scales. Combining decades of industry experience with world-class resources, TPG Hotels & Resorts brings the best solutions to drive profitability for clients and their portfolios.
Hotels in portfolio: 500 /HQ: US
15. Davidson Hospitality Group
Davidson Hospitality Group proudly serves as manager for a select profile of the most trusted, bold, and innovative hotels, resorts, restaurants, and hospitality brands. Davidson delivers industry leadership, hospitality innovation, and best-in-class services to their world-class ownership partners.
Hotels in portfolio: 110 / HQ: US
To partner or not
The decision to work with a hotel management company requires careful consideration. While these companies bring great experience and knowledge, lodging operators should also feel empowered to run their business independently if desired.
As a best practice, owners who want to retain control over day-to-day operations and ensure their unique perspective is prevalent across the property should be wary of management companies. On the other hand, a management company might be the perfect option if you’re looking to play a purely strategic role and focus on expanding your business.